CASHFLOW MODELLING

Question 1

CASHFLOW MODELLING FACTORS

Answer 1

Timescale

Income Requirements

Capital Requirements

Assets available to provide income

Other Assets

Investment Returns

Charges

Inflation FCA sets out assumed rate of CPI

Question 2

PS 20/6 PENSION TRANSFER ADVICE

WHERE ADVISER USES CASHFLOW MODELLING from 1st Oct 20

Answer 2

Adviser must

Produce in real terms in line with CPI

Where net income is being modelled ensure tax bands and limits applied are reasonable assumptions

Take into account relevant tax charges in both ceding and proposed arrangement

Include stress testing scenarios

Question 3

CASHFLOW STRESS TESTING

EXAMPLES

Answer 3

The client lives longer than expected

The client dies earlier than expected will survivors have sufficient income

A market crash occurs

Income needs increase

A large unplanned capital W/d is required

Investment returns are less than expected

Inflation is higher than historical trends and current conditions suggest is likely